Building A Fortune: Jerry Jones And The Cowboys

The 31 owners in the National Football League (excluding that unusual public arrangement in Green Bay) include some of the most notorious characters in business. The AFC South is home to an owner who had had public battles with addiction and who combats bad publicity by literally handing out $100 bills. In the NFC East, there’s a tycoon who not only got county officials to forbid people from walking to games, but added a parking surcharge to every ticket.

Add the billionaire who paid $162 million as the result of an FBI investigation, and the one who cooked books to shut his real estate partners out of $51 million, according to plaintiffs, (while simultaneously getting taxpayers to buy him a half-billion dollar stadium), and it’s hard for an NFL owner to stand out. Yet Jerry Jones does.

Iconic Franchise, Iconic Owner

The second-most iconic owner in all of North American sports (unless you count the Charlotte Hornets’ Michael Jordan, who’s famous for other reasons), Jones bought the Dallas Cowboys in 1989 and forever changed the archetype of the meddlesome sports owner. Jones is also the Cowboys’ general manager, a hands-on position that normally requires a devotion to quotidian football matters to the exclusion of everything else. Somehow the 71-year-old Jones manages to handle both roles, and has done so with an enviable record of success. In a quarter-century with Jones at each helm, the team has won three Super Bowls and boasts the best record in the NFL in 2014. Granted, the last of those titles was 19 years ago, but no team has won more Super Bowls since Jones bought the Cowboys.

The former University of Arkansas guard benefited from nepotism at the start of his business career, although modestly so by NFL-owner standards. Jones went to work for his father’s insurance company upon graduating college, and didn’t start at the bottom. Selling 20-pay life policies isn’t the kind of occupation to keep a personality like Jones enthralled, so he borrowed money from his father-in-law to buy a series of pizza franchises in Missouri. They failed, and the young and unsuccessful entrepreneur was in danger of going bankrupt. Finally, at 25, a resurgent Jones switched careers and formed Jones Oil and Land Lease. (For more, see: Recession-Proof Sports Leagues.)

Rolling the Dice on Oil

“Wildcatting” is a distinctively American expression, evoking images of dust devils rolling over bleached longhorn skulls on an empty prairie. But it’s a particular term of art, one that refers to drilling for oil in places not heretofore known to contain it. Fishing where they ain’t, as it were. The reasons for wildcatting are clear: although the risk is high, the rewards can be otherworldly. If a wildcatter quietly buys the surrounding claims, which should be dirt cheap, then happens to strike oil, the price of that real estate will skyrocket. On the other hand, come up dry, and the wildcatter loses his investment and goes crawling back to his daddy’s insurance agency. (For related reading, see: The Irreplacaeble Brand of Donald Trump.)

Jerry Jones the wildcatter found an overlooked but fecund piece of Oklahoma in which to explore. He was extremely leveraged at the time, paying $10,000 a month in loan interest, and those were mid-1960s dollars. But Jones’s initial Oklahoma well ended up gushing. Within a decade, Jones’s net worth was deep into the 8-digit range. By 1989, he was spending a disproportionate amount of time in Dallas, a city with plenty of lending institutions and a famous football team that had fallen on hard times. In other words, a deliciously undervalued asset. After discovering that the Cowboys were on the block, Jones leveraged himself yet again and ponied up an unheard-of $140 million, then the going rate for a team coming off a 3-13 season. Greatly simplifying the story, Jones fired everyone, brought in his college roommate as head coach, and won his first Super Bowl a little over three years later. But the turnaround on the field was nothing compared to what Jones had planned elsewhere. (For more, see: How to Invest in Sports Teams or Groups.)

Merchandising Windfall

In 1995, Jones made a heretical decision to sign a clothing deal with Nike Inc. (NKE), bypassing the NFL’s official merchandising arm. The rationale was simple and logical: at the time the stupendously popular Cowboys were responsible for a quarter of the league’s team-branded merchandise sales, yet received only a uniform 1/30 share of revenues. The old-guard owners were furious to the point of filing a $300 million lawsuit, but had no authority to stop a countersuing Jones.

Back then the NFL also had an exclusive licensing arrangement with Coca-Cola Co. (KO). Almost predictably, and probably just out of spite, Jones then signed an independent deal with PepsiCo Inc. (PEP). In the words of one of Jones’s monolithically short-sighted fellow owners, “You can't have different running shoes and credit cards and soft drinks sponsoring each team. They don't exist!" (For related reading, see: Understanding Value: Donald Trump and His Net Worth.)

Innovative Licensing

Jones’s Nike deal made headlines at the time. Considerably more subdued was the reaction a few months later, when every single team in the league had followed Jones’s lead and quietly signed its own agreement with Nike, Adidas, Reebok or any of several other major sportswear companies. Nor was apparel licensing Jones’s only revenue-generating innovation that we now take for granted. Personal seat licenses? They’re another Jones invention, now worth about $90 million to his team’s bottom line.

At the time of the licensing shakeups, Jones was a brash upstart with a short tenure in a league where multigenerational legacy ownership is the rule. His maverick ways have only continued, and continued to enrich the Cowboys. Last year they pulled in an estimated $560 million in revenue, the most of any NFL team. Even Jones’s luck with pizza franchises did a 180º: his family now has a half-interest in 75 Papa John’s International Inc. (PZZA) locations throughout Texas. Jones doesn’t even seem to mind that Papa John’s is an official NFL sponsor. (For more, see: Licensing Pays Some of the Bills.)

America's Team

As brilliant or serendipitous an acquisition as Jones’s oil fields were, his shrewdest investment remains the Cowboys. That investment is now worth…well, it’ll take us some estimating.

Forbes valuations of sports teams are the industry standard, the primary reason being that few other sources bother doing them. But Forbes assessments can be extremely inaccurate: for example, the Los Angeles Dodgers were recently valued at $800 million, and sold months later for $2 billion. Forbes estimates for NBA teams are similarly conservative. But the Cowboys’ assessed value might be as accurate as any. Looking at operating income (which is substantial), debt (which is not), and replacement value, an open-market sale of the Cowboys would generate about $3.2 billion. However, that figure is academic. It’s inconceivable that Jones would sell the franchise that made him not only a billionaire multiple times over, but part of the public consciousness. (For more, see: How Much Are NFL Teams Really Worth?)

The Bottom Line

Even though he was wealthy by any measure at the time, Jones put his entire fortune into the Cowboys with little margin for error. Fittingly, 25 years later the Cowboys have returned the favor, putting billions into Jones’s pocket. On a landscape where many sports team owners make their fortunes elsewhere and then treat their team as something of a toy, Jones is the rare owner who generates enormous cash flow from the team itself. His initial critics notwithstanding, Jones’s independent streak has benefitted his fellow NFL owners (average team worth, $1.43 billion) like no one or nothing else could have. (For more, see: The Pros and Cons of Sports Investing.)

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